Kenyan shilling holds steady, stocks extend rally

NAIROBI (Reuters) - The Kenyan shilling held steady on Friday, kept in check by central bank buying of dollars as a funding squeeze worsened, pushing interbank rates higher.

Kenyan stocks rallied for the 14th straight session on optimism over the outlook for earnings.

The shilling remained within touching distance of a ceiling sketched out by the country's acting finance minister of 82 per dollar to protect exporters. Traders said central bank buying dollars was keeping it from rising further.

At the 1300 GMT market close, banks quoted the shilling at 82.60/80 per dollar, barely moving from Thursday's close of 82/65.85.

"Tightness (of liquidity) remains a key factor in the market with the interbank rate nearing 25 percent," said Duncan Kinuthia, head of trading at Commercial Bank of Africa.

The weighted average interbank interest rate rose to 24.7 percent on Thursday from 24.0 percent on Wednesday, driven up by banks scrambling for liquidity.

Rising rates for bank-to-bank transactions, which offer banks high returns from lending shillings, also make them less inclined to hold dollars, thereby supporting the local currency.

Kenya's interest rates soared in the final quarter of 2011 after policymakers embarked on an aggressive tightening round, which saw the central bank raise its benchmark rate to 18 percent in December, to curb foreign exchange volatility and fight inflation.

The bank, which has left the rate unchanged this year, said in a weekly bulletin that it purchased dollars equivalent to 5.91 billion shillings this week.

Overall, its official usable foreign exchange reserves rose for the third straight week to $4.181 billion, from $4.140 billion last week.

"Any strong appreciation should be checked by authorities purchasing to beef up reserves," said Bank of Africa in a daily note to clients.

On the stockmarket, the main NSE-20 Share Index inched up by 0.2 percent to 3401.6 points, near a three-month high and helped by investors buying shares on the view that some were undervalued after good full-year earnings results.

"The price-to-earnings ratio is very lucrative based on the companies' performance we have seen and a stable currency, which means a better macroeconomic environment for companies," said Mwenda Rarama, a research analyst at Kingdom securities.

Rarama said foreign investors were buying into future growth of various blue chips, while locals were seeking dividends such as from cigarette manufacturer British American Tobacco, whose shares rose 1.7 percent to 308 shillings.

In the debt market, government bonds worth 2.86 billion shillings were traded, up from 1.78 billion shillings a day earlier.

Source: http://news.yahoo.com/kenyan-shilling-holds-steady-stocks-extend-rally-145319367.html

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